Long lines formed outside exchange kiosks in Moscow as the Central Bank of Russia (CBR) suspended trading in dollars and euros as a result of new US sanctions targeting banks facilitating sanctions-busting trade with Russia on June 12.
The CBR unexpectedly changed the start time for the start of trading on the foreign exchange market on June 13, pushing back trading to 9.50 am, instead of the usual 6.50am.
The US expandedsmart sanctions introduced in December, amongst the most successful sanctions to date, that has hurt Russia and caused leading Chinese and Turkish banks to cut ties with Russian clients to avoid being hit with secondary sanctions.
The US Office of Foreign Assets Control (OFAC) releaseddetails of the new round of sanctions targeting Russian banks that serve as intermediaries in dollar trading on the Russian foreign exchange market. The Moscow Exchange suspended trading in dollars and euros as of the start of the following day beginning June 13.
“As President Biden and Group of Seven (G7) Leaders prepare to meet this week in Italy, the U.S. Department of the Treasury is issuing sweeping new measures guided by G7 commitments to intensify the pressure on Russia for its continued cruel and unprovoked war against Ukraine,” OFAC said in a statement.
“Today’s actions ratchet up the risk of secondary sanctions for foreign financial institutions that deal with Russia’s war economy; restrict the ability of Russian military-industrial base to take advantage of certain US software and information technology (IT) services; and, together with the Department of State, target more than 300 individuals and entities both in Russia and outside its borders—including in Asia, the Middle East, Europe, Africa, Central Asia, and the Caribbean—whose products and services enable Russia to sustain its war effort and evade sanctions,” OFAC said.
Foreign financial institutions risk being sanctioned for conducting or facilitating significant transactions, or providing any service, involving any sanctioned person. OFAC specifically named VTB Bank and Sberbank, Russia’s two biggest banks, as being off limits.
The new US restrictions have also impacted the National Clearing Centre, a counterparty to all currency transactions on the Moscow Exchange; the National Settlement Depository, Russia's primary securities depository; and the insurance companies Sogaz and RNPK.
Companies, banks, and investors can no longer trade dollars or euros via the Russian exchange. However, buying and selling FX is still possible, but only on the over-the-counter (OTC) market.
Trading in dollars, euros and the Hong Kong dollar as well as trading in precious metals has been suspended on the Moscow Exchange as a result of the sanctions. Viral videos showed long lines of Russians forming at money changers, trying to buy foreign exchange while stocks last.
“Russia’s war economy is deeply isolated from the international financial system, leaving the Kremlin’s military desperate for access to the outside world,” said Secretary of the Treasury Janet L. Yellen. “Today’s actions strike at their remaining avenues for international materials and equipment, including their reliance on critical supplies from third countries. We are increasing the risk for financial institutions dealing with Russia’s war economy and eliminating paths for evasion, and diminishing Russia’s ability to benefit from access to foreign technology, equipment, software, and IT services. Every day, Russia continues to mortgage its future to sustain its unjust war of choice against Ukraine.”
The ruble was unaffected by the change, trading at RUB90.9 to the dollar as of the close of trading on June 12, slightly weaker than the RUB89.2 it was trading at the end of trading on June 11. (chart).
Most Russians hold some portion of their savings as FX as insurance against regular exchange rate volatility and banks hold billions of dollars and euros in retail deposit accounts. The CBR was quick to announce these deposits are in no danger and will be unaffected by the suspension of FX trading, in an effort to head off a possible run on bank deposits.
'Companies and individuals can continue to buy and sell US dollars and euros through Russian banks,' the CBR said in a statement. 'All funds in US dollars and euros in the accounts and deposits of citizens and companies remain safe.'
